Finally, the Federal Reserve initiated a rate cut cycle at the September interest rate meeting: FOMC announced a 50 basis point reduction in the target range for the federal funds rate, bringing it to the level of 4.75%-5.00%. The last time the Federal Reserve cut interest rates was in March 2020, which means that this rate cut is the first in four and a half years.

Just 7 weeks before election day, the Federal Reserve's "high-profile" move to start the rate cut has caught the attention of both U.S. presidential candidates: Democratic candidate Harris praised it as a boon for the middle class, while Republican candidate Trump suggested that the rate cut may be politically motivated.

This "tit-for-tat" commentary highlights the extent to which the economy and interest rates have quickly become a focal point of the election, with both parties seeking to use this measure to solidify their campaign positions.

However, Federal Reserve Chairman Powell unsurprisingly avoided questions about the U.S. election and stated that the Fed's decisions are based on serving the American people, and that decisions are never about politics or anything else. When making decisions, no other filtering conditions are set.

As he has always insisted, the Federal Reserve is an "independent institution" that will not let political pressure affect its decisions.

Sharp contrast

Trump said in a campaign event at a bar in Manhattan that this interest rate cut is a "very unusual number," regardless of the motives of the Federal Reserve.

"I think, if they're not just playing politics, then a rate cut of this magnitude indicates that the economy is in very bad shape. Anyway, it's a big rate cut," he said.

Harris, in a statement, said that this decision is "particularly welcomed news for Americans who are dealing with the impact of high oil prices." Her statement reveals that inflation is one of her biggest political burdens. Inflation has severely impacted American families and influenced voters' perception of President Biden's economic handling.

Harris also said, "I know that for many middle-class and working families, prices are still too high. As president, my top priority will be lowering the costs of everyday needs such as healthcare, housing, and groceries."

"This is in contrast to what Donald Trump would do as president. While proposing tax cuts for billionaires and big corporations, his plan would impose Trump taxes on goods that families rely on, such as gasoline, food, and outfits, thereby increasing the annual costs for families by nearly $4,000," she added.

Current President Biden praised this move as a "significant moment" in the fight against inflation. He said in a statement on X, "While the economy remains strong, the inflation rate and interest rates are declining, which critics say is impossible to happen--but our policies are lowering costs and creating job opportunities."

Controversy over the timing of the interest rate cut

However, Trump's supporters criticized the Federal Reserve for taking this interest rate action so close to the November election. Billionaire and Trump donor John Paulson, a hedge fund manager, said that he believes the Federal Reserve should "stay away from presidential politics."

Paulson & Co., a hedge fund company, was founded by Paulson in 1994. In 2020, the fund company transitioned into a family office. During the 2008 US subprime mortgage crisis, Paulson shorted approximately $25 billion of mortgage-backed securities, earning massive profits of $15 billion for clients. He is known as the 'Wall Street Bear' and the 'First Person of Hedge Funds.' His successful bet is documented in the book 'The Greatest Trade Ever.'

In addition, Paulson is also a 'super donor' to Republican presidential candidate Trump. Earlier, insiders disclosed that if Trump wins this year's election, he will recruit Paulson as Secretary of the Treasury.

Paulson said, 'Traditionally, the Federal Reserve has never lowered interest rates close to the general election. The only time in this century that they lowered rates was after the 2008 financial crisis when decisive action was needed. But our situation today is different. This decision avoids one question, whether this timing is intended to support Vice President Harris's campaign.'

'The Federal Reserve claims to be above politics, but the timing of today's action raises doubts about their claims,' he added.

These criticisms echo President Trump's fierce attacks on the Federal Reserve, which have raised concerns about whether he will increase pressure on the central bank if he wins the election. In June of this year, Trump hinted that interest rate cuts this fall could be seen as political intervention.

'Interest rates are very high right now, and it's hard for them. I know they want to try to do it. Maybe they will do it before the election, before November 5, even though they know they shouldn't,' he said at the time.

Pressure on the Federal Reserve

The former president previously accused the Federal Reserve of working against him. In 2016, he criticized then Federal Reserve Chair Janet Yellen for maintaining low interest rates during the presidential campaign of Democrat Hillary Clinton.

Moreover, Trump has recently indicated that the president should have more say in the Federal Reserve's handling of interest rates and monetary policy, which would overturn the Fed's long-standing independence from politics.

For decades, it has been customary for US presidents to avoid publicly criticizing the Federal Reserve's interest rate policies, but Trump has openly criticized the Fed during his presidency. Earlier this year, he also stated that if he wins this year's election, he will not reappoint Powell as the Fed chair.

Trump is not the only "political bigwig" pressuring the Fed on interest rate decisions. Three prominent Democratic senators have also called on Powell to cut rates by 0.75 percentage points this week.

Brendan Boyle, the Democratic leader of the House Budget Committee and a Pennsylvania congressman, said on Wednesday that the Fed's decision to cut interest rates is a victory for the middle class, praising it as a "significant progress in terms of inflation."

Editor/new